Question 1

Which of the following best explains why the Industrial Revolution began in England, according to Douglass North?

Accepted Answer

The British government made credible promises to uphold property rights and protect wealth after the Glorious Revolution.

Question 2

Suppose Country A has a real GDP per capita growth rate of 1.5% per year, while Country B has a growth rate of 2.5% per year. If both countries start with the same real GDP per capita, which country will have a higher standard of living after 50 years, and why?

Accepted Answer

Country B, because a higher growth rate leads to a much larger increase in real GDP per capita over time.

Question 3

Which of the following is NOT a main source of technological change according to the economic growth model?

Accepted Answer

Discovery of new natural resources

Question 4

The per-worker production function demonstrates diminishing returns to capital. What does this mean in practical terms for a pizza shop adding ovens?

Accepted Answer

The first few ovens increase output significantly, but each additional oven adds less to output than the previous one.

Question 5

According to Paul Romer's new growth theory, why does knowledge capital result in increasing returns at the economy level?

Accepted Answer

Knowledge capital is nonrival and nonexcludable, so many firms can benefit from the same innovation.

Question 6

Which of the following government policies is most likely to address the problem of 'free riding' in the creation of knowledge capital?

Accepted Answer

Protecting intellectual property with patents and copyrights

Question 7

A country with weak rule of law is likely to experience which of the following outcomes?

Accepted Answer

Low economic growth due to lack of property rights protection

Question 8

Suppose a country increases its capital per hour worked but does not experience any technological change. According to the per-worker production function, what will happen to output per hour worked in the long run?

Accepted Answer

Output per hour worked will increase, but at a decreasing rate due to diminishing returns.

Question 9

Which of the following best describes 'creative destruction' as proposed by Joseph Schumpeter?

Accepted Answer

The process by which new products and technologies replace old ones, driving economic growth.

Question 10

If a country’s real GDP grows by 3% per year and its population grows by 4% per year, what happens to real GDP per capita?

Accepted Answer

It decreases by 1% per year.

Question 11

Which of the following is an example of foreign direct investment (FDI)?

Accepted Answer

A German car manufacturer builds a factory in Mexico.

Question 12

Why might some low-income countries fail to experience rapid economic growth, even though the economic growth model predicts they should catch up?

Accepted Answer

They often face weak institutions, wars, poor education and health, and low rates of saving and investment.

Question 13

Which of the following policies would most directly promote long-term economic growth in a developing country?

Accepted Answer

Subsidizing education and research and development

Question 14

If technological change shifts the per-worker production function upward, what is the likely effect on real GDP per hour worked?

Accepted Answer

Real GDP per hour worked increases at every level of capital per hour worked.

Question 15

Which of the following best explains why the United States has maintained higher growth rates than other high-income countries in recent decades?

Accepted Answer

The U.S. financial system is efficient and new technologies are adopted quickly.

Question 16

Which of the following is the best measure of a country's standard of living?

Accepted Answer

Real GDP per capita

Question 17

Suppose a country is experiencing rapid increases in health and education, but its real GDP per capita is stagnant. According to Charles Kenny, what can be said about its standard of living?

Accepted Answer

Its standard of living can still improve due to advances in health and education.

Question 18

Which of the following equations correctly expresses the growth rate of real GDP per capita?

Accepted Answer

$$ 	ext{Growth rate of real GDP per capita} = 	ext{Growth rate of real GDP} - 	ext{Growth rate of population} $$

Question 19

Which of the following is a likely consequence of a country cutting itself off from foreign trade and investment, based on historical experience?

Accepted Answer

Lower rates of economic growth due to lack of access to foreign capital and technology.

Technological Change, Economic Growth, and Living Standards: A Study Guide

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